The new messaging standard ISO 20022 could unlock richer data sets across cash and payments transactions. BBH’s Shruti Aggarwal and John Wallis set out what firms should consider in their migration plan.
While the entire financial world is transitioning to the new standard, market participants face special challenges and need to begin planning how they can most efficiently accomplish the migration.
SWIFT has set November 2022 as the start date for using the ISO 20022 standard for cash and payments messages replacing ISO 15022 message categories 1xx, 2xx, and 9xx. There will be a three-year overlap period in which firms can continue to use either the old ISO 15022 standard or the new messaging standard. The old standard will be decommissioned in November 2025.
The new ISO 20022 standard is expected to provide significant benefits to market participants by allowing them to include more transactional information, such as FX data or proprietary business information, in each financial transaction message. And by using Extensible Markup Language (XML) instead of proprietary formats (or MTs), the ISO 20022 standard produces messages that are both human readable and machine readable.
One area where the ISO 20022 standard will help managers is with compliance. Fields added to the 20022 format such as Legal Entity Identifiers, the unique codes for firms participating in a financial transaction, and receiving party definitions will provide more information. The format will more clearly identify the parties involved in transactions and more precisely define the transactions themselves, which can lead to improved risk management and fraud prevention.
Managers will get clearer information about the parties involved in a securities transaction, the countries involved (which can be important for legal and compliance reasons) as well as the currency involved in each transaction. The amount the transaction actually yielded can now also be specified, as well as transaction details such as exercise price, conversion price, strike price, market price, and indicative price.
Another benefit of the new format is much greater information about cancelled transactions — a major headache under the old system — and whether they are credits or debits for the manager’s accounting system.
The upgrade to ISO 20022 in many cases may require substantial conversion of a multitude of legacy systems, including technology platforms, messaging platforms, and the institutions’ own operating platforms. These conversion costs have been a substantial burden in previous migrations, so opting to use a third-party messaging provider to focus on messaging and migration complexities is a good way to preserve resources.